SALT LAKE CITY — Lying on his living-room floor, bleeding and in pain from a ruptured polyp in his colon, Patrick Walts wasn’t thinking about dying; he was thinking about the bills he was about to incur.
Even though he’s employed and has health insurance, the 42-year-old Oklahoman had only recently paid off his share of the costs of having his gall bladder removed in 2016. This year, he’d ignored abdominal pain until July, when he made a midnight visit to an emergency room. Now, he owes more than $6,000 to the hospital and surgeon, and like most Americans, he doesn’t have that kind of money lying around.
“I have mini anxiety attacks when an unfamiliar number pops up on my phone. There’s a dark cloud over my head,” Walts said.
The retail worker is among the one-quarter of Americans who stand to personally benefit if Vermont Sen. Bernie Sanders’ new plan to cancel overdue medical debt were to be enacted. With 1 in 4 Americans ages 24-55 saddled with health care bills they can’t pay, the Democratic presidential candidate wants Medicare to cover all U.S. citizens, regardless of age. But Sanders says the country also has a moral responsibility to help people dealing with onerous debt and damaged credit due to illness.
“A staggering 79 million Americans struggle to pay their medical bills or are paying off medical debt, including more than half of those making less than $40,000 a year,” the Sanders campaign says.
Under Sanders’ plan, the government would negotiate and pay off old debt that has been reported to credit agencies, an amount estimated at $81 billion. The Vermont independent also wants to replace for-profit credit reporting agencies with a federal registry that would not allow medical debt to be used when judging a person’s creditworthiness. About half of negative information on Americans’ credit reports stems from medical bills, according to the Consumer Financial Protection Bureau.
While some critics dismiss the plan as unrealistic — one attorney who helps people in debt calls it a “fairy-tale solution” — most everyone agrees that medical debt is a serious problem that is getting worse in America, where annual health care spending significantly exceeds that of other countries.
“Health care costs have been rising in the U.S., and part of it is that for people who have employer coverage, health care costs have suppressed wage growth,” said Cynthia Cox, vice president at the Kaiser Family Foundation. “Wages have been growing at a slow rate, so when people encounter a significant health care expense, they may not have the savings to pay that off.”
Sanders cites a study that concluded that 66% of bankruptcies are related to medical bills, a figure that has been been disputed. But Cox and some other analysts say that medical debt is even worse than reported because some people pay health care bills with credit cards, which disguises medical debt as credit-card debt.
“The bankruptcy thing misses the point,” Cox said, noting that many people who don’t file bankruptcy are still living diminished lives because of medical bills. “The most common thing that people forgo is vacations (when they have medical debt). But pretty quickly after that, people struggle to pay for basic household expenses.”
Still, not everyone agrees that a new, sweeping government program is the solution, and there are already people whose jobs involve erasing people’s medical debt. Here’s what Sanders is proposing, and what’s already available to help people who are burdened with medical debt.
The Sanders plan
In announcing his plan Sept. 21, Sanders said in a statement that “the very concept of medical debt should not exist.”
“In the wealthiest country in the history of the world, one illness or disease should not ruin a family’s financial life and future,” he said. “It is immoral and unconscionable that families across the country are being evicted, having their heat disconnected, or having their already-inadequate wages garnished because of crippling medical debt while the health care industry made more than $100 billion in profits last year.”
Sanders cited research from 2016 that found that 1 in 6 Americans have negative marks on their credit reports because of past-due health care bills.
Although older Americans consume the most health care services, it’s younger Americans who are more likely to be in debt. People who are 55 and older account for half of health care spending, according to the Kaiser Family Foundation, but the largest share of medical debt belongs to 27-year-olds who were removed from their parents’ policies when they turned 26. And studies have found that one-quarter of Americans between the ages of 24 and 55 have past-due medical bills.
Sanders wants the government to negotiate with collection agencies that buy medical debt from hospitals, usually for a fraction of the total bill, and pay it off. This is similar to what a New York-based nonprofit RIP Medical Debt is already doing for some people who are insolvent and live below or close to the federal poverty level.
The nonprofit, founded by former collections executives, uses donations to purchase packages of old debt from hospitals or collection agencies, and then settles the accounts and notifies the debtors that their accounts have been paid in full. The forgiveness is a “random act of kindness” that cannot be requested since the nonprofit is not able to work with individual accounts, co-founder Craig Antico said. Since its founding, RIP Medical Debt has paid off more than $900 million in past-due bills, but the firm estimates that there is about $1 trillion in outstanding medical debt, affecting 35% to 40% of Americans, “that’s on their kitchen tables, their brains, their minds.”
Antico said he thinks it’s a “noble idea” to erase Americans’ past-due medical debt but said doing it would be a lot more complicated than Sanders’ plan makes it seem. For one thing, he said, some debtors could wind up owing taxes on the amount that was forgiven, similar to the short sale of a home.
Also, while hospitals are generally willing to offer payment plans or reduce the amount owed, doctors generally don’t, and the broad umbrella of “medical debt” includes not just the nation’s 5,800 hospitals and 400,000 physicians, but also laboratories, urgent-care facilities, retirement homes and assisted living facilities, he said. “It’s very, very difficult to buy debt from a doctor,” Antico said. “Most debt that is bought is hospital debt.”
Several people who work with consumers said they preferred not to comment on a partisan plan. But Eric W. Olsen, the founder of HELPS, an Oregon-based nonprofit that helps seniors in debt, called it a “fairy-tale solution” that addresses the least-troublesome aspect of consumer debt.
“Medical-debt collectors are among the least aggressive. And there are many hospitals and doctors that simply write things off and don’t turn the debt over to collectors,” Olsen said, adding that credit-card debt is the biggest problem for most of his clients.
But Cox, at the Kaiser Family Foundation, noted that one reason people get into trouble with credit cards is because they use them to pay medical debt. And the health problems that caused the medical debt can also cause a waterfall of other financial problems, to include lost or reduced income during and after the medical event.
That’s what happened to Walts, twice. He had his gall bladder removed in 2016 and was unable to pay the “dozens of bills” that arrived over the next few months, even though he works full-time in retail and writes science fiction as a side gig. “It only amounted to a couple of thousand dollars or so after insurance, but that’s a significant amount to me,” he said. In fact, it’s a significant amount for most people in the U.S. A survey released earlier this year found that 6 in 10 Americans don’t have money to cover a $1,000 emergency, and another showed that 40% of us don’t have an extra $400 on hand to cover an unexpected bill.
After he was sued for the amount owed, Walts began making payments and eventually paid the bills, but the experience made him reluctant to seek medical care when he began having digestive issues. “I don’t go to the doctor unless it’s dire,” he said. “The decision to seek care can result in years of hardship. I only went (this year) because I was in severe pain and hemorrhaging blood. That’s what it took.”
When Walts went to the emergency room in July, doctors discovered that a polyp in his colon had ruptured and immediately sent him into surgery. He was told that he likely would have died had he not sought care when he did, and he wound up spending four days in the hospital. He also had to take a month off from work, getting just 60% of his regular pay. Now the bills stemming from the surgery and hospital stay are past due, and he’s back in a familiar cycle, avoiding the ringing phone because he knows there’s a bill collector on the line demanding that he pay.
What to do
Antico, at RIP Medical Debt, says that more Americans like Walts are struggling to pay medical bills than in the past, because “the patient is now the new payer of hospitals.”
“It used to be that, just 20 years ago, people ended up paying about 10% of hospitals’ patient revenue. Today, it represents 30%. That’s due to all this cost shifting, higher deductibles, bigger coinsurance, and out-of-network (charges), which are 20% of all billing.”
Because of this, it’s increasingly important that people take the time to understand their insurance policies, and to know before getting any kind of medical care whether the provider is in or out-of-network. “You can’t be surprised. Don’t go out of your network if you don’t have to,” he said. “And get Medicaid if you qualify for it. That’s the best insurance you can possibly get. I’ve never met a person with medical debt who has Medicaid. Never. It’s the best insurance you can get.”
Additionally, Mary Covington, owner of Salt Lake City-based Denials Management Inc., says that consumers should not meekly accept what insurance companies say they will pay. In her work as an advocate for families and health care providers, Covington said she has found that 70% of denied claims should have been paid.
“A lot of medical debt is caused by inappropriate denials,” she said.
Covington, who worked for Aetna Insurance for 10 years before co-founding Denials Management in 1990, said that over the course of her career, she has seen insurance companies go from approving most claims to aggressively seeking ways to deny them. “Insurance companies don’t make money if they pay claims; their inclination to deny has become more prevalent,” she said.
Most consumers don’t take the time to carefully read their insurance policies, let alone make the effort to understand them, and don’t take the time to challenge denials of coverage, Covington added.
Ideally, people should have savings set aside to cover medical emergencies, but if that hasn’t happened, people in debt should contact the hospital and ask about its charity programs, both Covington and Antico said.
Typically, those programs offer forgiveness or a reduction in the amount owed for people who make twice the federal poverty level, or even higher. In Utah, for example, Intermountain Health care provides assistance for individuals or families making up to 500% of the federal poverty level, according to Daron Cowley, Intermountain’s corporate media relations director.
Ignoring a bill is the worst thing you can do. Call or go to the hospital and explain what your income is, and how many people are in your household. Tell them you need their charity care. “They can change it. They can change it to no bill. Zero,” Antico said. “You have a right to charity care, or a payment plan. But you’ve got to call them.”
If the debt has already gone to collections, answer or return calls promptly, he said. But never agree to pay more than you can handle with your other bills. For most people, that’s about 2% or 3% of their gross income; paying 5% or more toward medical expenses or medical debt becomes a “material hardship,” making you unable to pay basic household expenses.
“Come up with a payment plan, even if it’s just $5 a month. And never, ever put a medical bill on a credit card,” he said.
Sanders is currently trailing Elizabeth Warren and Joe Biden in presidential polls, so it’s uncertain whether his plan will ever come before Congress. Even so, there are other things lawmakers could do to help consumers.
Covington notes that some states, including Arizona, have ombudsmen to help consumers who have had claims denied by insurance companies. Utah doesn’t have one, but every state should, she said, and the cost could be covered by states or the federal government.
And Olsen, with the nonprofit HELPS in Oregon, said Congress could help people with medical debt by making it harder for collection agencies to garnish their wages to cover the debt. Currently, $217.50 net per week is protected; anything above that is subject to garnishment to pay judgments. People don’t lose their homes or vehicles because of medical bills, but they can lose their wages, and the amount of protected income hasn’t been raised in decades, Olsen said.
Correction: Mary Covington, of Denials Management Inc., worked for Aetna for 10 years. An earlier version of this article incorrectly said she had been with the company for 20.